The California Public Utilities Commission at its Aug. 1 meeting approved a series of modifications to the “three-prong test” used to evaluate whether fuel-substitution programs can access energy-efficiency funding [R13-11-005, D19-08-009].

“The proposed decision removes a long-standing barrier to allowing energy-efficiency incentives to be used for energy-saving fuel-substitution measures, and provides a pathway for customers interested in electrification of their appliances,” Commissioner Liane Randolph said.

The three-prong test was established in 1992, as the state was experiencing a large-scale shift from electric equipment to natural gas-fueled equipment in buildings. Under the framework, projects that switched from natural gas to electricity, or vice versa, would only receive funding if they met three criteria: they should not increase energy consumption; they should meet certain cost-effectiveness standards; and they should not adversely impact the environment. For the third prong of the test, any party wishing to implement a fuel-substitution program would need to compare the environmental costs of the switch with values for residual emissions adopted in 2004.

However, in a June 2017 motion filed with the commission, environmental groups including the Natural Resources Defense Council and Sierra Club argued that the test requires review and modification given the changing energy landscape in the state—specifically, the role of fuel substitution in reducing greenhouse gas emissions.

Given California’s clean-energy and energy-efficiency progress, the test now presents “a barrier to California’s progress on climate and energy goals,” according to the motion. The groups noted that the state needs to reduce emissions from buildings to meet its ambitious climate goals, which would in turn require electrifying building appliances and powering them with clean energy sources, as well as using “decarbonized” fuels—like biogas—to replace fossil fuels.

“The current structure and lack of clear guidance for the test make it difficult to access energy-efficiency funding available through California’s efficiency programs for projects that involve fuel substitution—even when these projects use highly efficient technologies and reduce climate pollution,” the motion said.

Among the changes the CPUC made to the test is the omission of the cost-effectiveness prong. The framework will now be known as the “fuel-substitution test.”

The new version of the fuel-substitution test, outlined in the Aug. 1 decision, will require fuel-substitution measures to prevent increased energy use, as well as adverse environmental impacts. Specifically, they must not increase carbon dioxide-equivalent emissions above what is forecast.

The original version of the test requires any fuel-substitution program to have a 1-to-0 cost-benefit ratio or higher. But in comments, multiple parties, including NRDC and Southern California Edison, recommended that the standards be applied at the portfolio level rather than to individual projects.

The commission acknowledged that applying the cost-effectiveness threshold to each measure presents a barrier, since other energy-efficiency programs don’t require the same standard.

“We do not wish to continue to erect a cost-effectiveness barrier for fuel substitution measures that represents a higher hurdle than for any other measure included in the energy efficiency portfolio. Therefore, we will not require that a fuel substitution measure pass a cost-effectiveness threshold at the individual measure level,” the decision stated.

However, energy-efficiency program administrators still must propose overall cost-effective portfolios.

Environmental groups hailed the decision, saying that the state’s billion-dollar energy-efficiency budget will now be available for technologies that transition customers from natural gas to electricity usage.

“Now program administrators need to develop and propose a new set of programs, or integrate new measures into existing programs, so that funds can start flowing to the most promising technologies that save energy, cut pollution, and ultimately provide economic and environmental benefits to all Californians,” Merrian Borgeson, a senior scientist with NRDC, wrote in an Aug. 1 blog post.

The decision, however, received criticism from other groups. De’Andre Valencia, advocacy director with the Los Angeles County Business Federation, said at the meeting that the decision lays the groundwork for the electrification of all buildings in California regardless of cost or impact to communities.

“While this regulation does not explicitly mandate electrification of all buildings, it is clear that this is the intent,” he said.

Commissioners also passed a decision modifying the Self-Generation Incentive Program, which provides incentives to customer-side distributed energy systems, including wind turbines, waste heat-to-power technologies and advanced energy storage systems [R12-11-005, D19-08-001].

A key concern for the CPUC has been ensuring that the program does not lead to a cumulative increase in greenhouse gas emissions. Analyses of the program conducted in 2016 and 2017 found that SGIP commercial storage projects had contributed net annual GHG emissions of 726 metric tons of CO2 and 1,436 metric tons of CO2, respectively. In 2017, residential storage systems also led to GHG increases. SB 700, legislation passed last year, required the commission to implement regulations requiring SGIP storage systems to reduce emissions instead.

The decision requires, among other things, that the program’s administrators provide a digital GHG signal to help developers and customers align their storage systems’ schedules with low- and high-carbon emissions periods.

“These new rules will govern how energy storage systems are operated, to ensure that new systems reduce GHG emissions—which is a clear statutory requirement,” Commissioner Clifford Rechtschaffen said.

Additionally, commissioners acted on the following items at the Aug. 1 meeting:

  • Fined Liberty Power Holdings $431,014 and Gexa Energy $1.7 million for not complying with renewables portfolio standard program requirements [R18-07-003, D19-08-007].
  • Approved a $24-million budget for the California Energy Commission’s natural gas research and development program for 2019-2020 [Res G-3555].

Kavya Balaraman covers the California Public Utilities Commission and PG&E Corp. for California Energy Markets. She has reported on climate policy and science in Washington, D.C. and graduated from Columbia University's Graduate of Journalism.